Tax Depreciation Frequently Asked Questions

Tax depreciation is a critical facet of property investment that often goes overlooked, leaving many with unanswered questions. Dive into our FAQs page where we address common queries about tax depreciation schedules, helping you navigate this essential aspect of property ownership with confidence.

Tax depreciation is a vital aspect of property investment, representing a deduction claimed for the gradual wear and tear of income-producing buildings and their assets over time. Often considered the second most significant tax deduction for property investors, following interest, understanding tax depreciation is essential for maximising returns and optimising financial outcomes.

Below, we address common questions and concerns surrounding this crucial aspect of property investment.

How many years does a tax depreciation schedule last? Is it necessary to do a report every year?

Our Tax Depreciation Schedule covers 40 years’ worth of deductions, which means you can claim tax deductions each year from the date of settlement. If you purchase another investment property, you will need a new tax depreciation schedule for it.

Is my property too old to claim depreciation?

It is often mistakenly believed that older properties won’t yield any depreciation claims. However, both newer and older properties are claimable.

Utilising a depreciation schedule is the most effective method to maximise potential tax refunds. Archi-QS’s report covers all available deductions over the property’s lifetime.

What is the difference between prime cost and diminishing value methods of depreciation?

The prime cost method depreciates assets equally over its effective life. This differs from diminishing value as this method assumes the value of the depreciating asset declines in value each year, resulting in higher deductions in the first few years.

Our reports include both methods so that you can decide on the most beneficial one for you with your accountant.

What items can I claim depreciation deductions on?

All plant and equipment items specified by the ATO, along with capital allowances applicable to the building (if eligible), are claimable. Capital allowances encompass structural elements of the building such as the concrete slab, timber frame, roofing, paving, and retaining walls. Plant and equipment items comprise various components found within the property, including but not limited to: air conditioning, bathroom accessories, carpets, cooktops, curtains, etc.

What does a tax depreciation schedule contain?

Not all depreciation reports are equal in quality. Our depreciation report stands out as it’s meticulously prepared by registered Quantity Surveyors and Tax Agents. It includes:

A comprehensive methodology overview.
A list of all Division 43 capital allowances applicable to the property.
A detailed 40-year summary illustrating both diminishing value and prime cost claims side by side.
A graphical comparison of the two depreciation methods, aiding in the selection of the most suitable approach.
Inclusion of relevant legislation and ATO Tax Rulings for clarity and compliance.

Can Archi-QS advise me on which method I should choose when claiming my taxes?

We’re here to help with any questions about the tax depreciation schedule. However, when it comes to choosing the best method for you, we recommend consulting your accountant. They are the most qualified individual to offer guidance in this regard, as they possess a deep understanding of your tax history and personal financial details.

Shouldn’t my accountant prepare this report?

According to taxation ruling 97/25, the ATO recognises quantity surveyors like Archi-QS as one of the few professions equipped with the necessary construction costing skills to estimate construction costs for depreciation purposes.

Can I claim tax depreciation on renovations?

We take into account any major renovations and upgrades to maximise depreciation.

What types of properties qualify for tax depreciation?

Any income-generating property is eligible to claim depreciation. We provide tax depreciation schedules for residential, commercial, and industrial properties.

How do I claim tax depreciation if I co-own the property with someone else?

When a property has multiple owners, each owner can claim their portion of tax depreciation. This requires the creation of a split report, boosting the amount that each owner can claim for immediate write-off and low-value pooling.

What happens if I sell my property before the depreciation schedule expires?

Once a property is sold and settlement is finalised, depreciation claims on it are no longer applicable. Any remaining capital works entitlements are transferred to the new owner if they decide to continue using the property for investment purposes. However, they are unable to claim depreciation on existing plant and equipment assets in residential properties, as per legislation introduced in 2017. They will, however, require a new tax depreciation report.

Another important consideration post-sale is capital gains tax (CGT), which is levied on the profit or capital gain generated from the sale of an income-producing asset. Various factors influence the amount of CGT payable, with potential discounts and exemptions available. It’s essential to discuss the matter with your accountant both before and after the sale. They possess expertise in this area and can offer further guidance.

How do Quantity Surveyors calculate depreciation?

We consider several factors, including the property’s construction date, purchase date, location, any significant renovations, and the inclusion of plant and equipment items. Our team will request this information through our application form.

Why should I choose Archi-QS to prepare my tax depreciation schedule?

We’re experienced quantity surveyor and tax agents that have been in the industry for over 30 years, providing expert building consultancy for our clients. Our reports cover 40 years’ deduction, ensuring compliance with ATO regulations and eligibility for tax deductions. Leveraging our extensive knowledge, we meticulously evaluate your property to maximise your deductions effectively.